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Florida Banking Law Blog Legal developments impacting banking, finance and loan enforcement in Florida

“Saving Everything” No Defense to Spoliation Argument

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As we discussed in our previous spoliation post, parties are required to place a litigation hold on all documents once litigation could be reasonably anticipated. Although there are certain definite “trigger events”, such as the receipt of a demand letter or the filing of a civil complaint, many courts have looked beyond these definite events to when the potential defendant should reasonably have anticipated that litigation may arise in the future.

In the case of Zest IP Holdings, LLC v. Implant Direct Mfg., LLC, a California judge granted the plaintiff’s adverse inference motion as well as imposing financial sanctions against the defendant for “grossly negligent” conduct. The Zest ruling is important for a number of reasons, which are of direct interest to financial and insurance institutions.

The defendant in Zest argued that its document retention policy was sufficient and that an independent litigation hold was unnecessary. The court was not persuaded by the defendant’s “we saved everything” defense. Although the defendant maintained a “no documents are to be deleted” policy, it was clear to the court that documents were in fact deleted. Moreover, the defendant failed to instruct its employees, including its CEO, to preserve documents in light of the litigation.

The court held that the “defendants destroyed documents with a culpable state of mind…defendants, in conscious, or perhaps willful, disregard of their obligation to preserve documents, allowed the documents to be destroyed by failing to implement a litigation hold and a document retention policy. Thus, defendants were at least negligent in not implementing a litigation hold…and not giving any affirmative instructions to their employees to preserve potentially relevant documents.”

It is important to understand that a policy of “saving everything” is not a substitute for a legal hold. Saving everything is a good start, but as in Zest, if emails can be deleted from the email archive, this policy is not sufficient for a legal hold. Furthermore, employees may use alternate email accounts which may or may not be archived.

Finally, the court held that bad faith or willfulness is not needed for adverse inference sanctions. bIn Zest the court found that the defendants possessed a “culpable state of mind” by acting “in conscious, or perhaps willful, disregard of their obligation to preserve documents,” and by allowing “the documents to be destroyed by failing to implement a litigation hold and a document retention policy.”